Auditors Debating Corporate, NPCU Accounting for U.S. Central Losses
U.S. Central's $1.2 billion in December impairments gobbled up more than $700 million in retained earnings, leaving that line item more than $400 million in the red. It also resulted in the NCUA assigning those retained earnings a new name on the credit union's 5310 Call Report: accumulated deficit.
U.S. Central's January 2009 financials report a continued negative $454 million accumulated deficit. That means retail corporates' $750 million in paid-in capital is still on the balance sheet, as is a $1 billion line item called NCUSIF capital.
Ultimately, the impairment decision is up to individual corporates and their auditors, said NCUA spokesman John McKechnie. However, he said the agency expects corporates to follow GAAP accounting rules and will review "how a corporate CPA determines the correct accounting treatment."
Scott Waite, FASB Advisory Board member and senior vice president/chief financial officer of the $4.2 billion Patelco Credit Union, said that per GAAP accounting standards, if paid-in capital or other U.S. Central investments made by member corporates are found to be impaired, the member corporates would have to take an OTTI charge. Corporates had approximately $1.9 billion in PIC and member capital shares as of Jan. 31, he said.
The losses trickle down even further. Waite said many natural person credit unions also have PIC or MCS with their corporates, and per GAAP accounting methods, they should also be conducting impairment analysis with their own auditors.
The Association of Corporate Credit Unions has been facilitating a forum for corporate CFOs and their respective auditing firms and will prepare a document that sums up their opinions over the next couple of weeks, said ACCU Executive Director Brad Miller.
"There are differing opinions among audit firms as to how to treat the U.S. Central situation, and we are discussing a range of potential scenarios with supporting logic for each," Miller said.
Speaking off the record, corporate executives said auditor opinions shared in the ACCU forum "have been all over the place." Overall, though, financial managers are divided into two main camps: those who think retail corporates shouldn't take any impairment at all, and those who think they should write down all of their PIC at U.S. Central.
The $750 million question is a pricey one for all corporates; however, small corporates would be hit much harder by total impairment.
For example, the $8.3 billion Members United Federal Credit Union currently has $106 million in PIC at U.S. Central, supported by $1.7 billion in equity. Compare that to the $163 million Louisiana Corporate, which has $2.5 million invested in U.S. Central PIC, supported by only $4 million in equity. A total impairment would eat up 6% of Members United's capital but more than half of Louisiana Corporate's.
Final determinations aren't due until corporates file their audited year-end 2008 financials, which are due in mid-April.